Court File and Parties
COURT FILE NO.: CV-18-00606547-00CL DATE: 20220113
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
JOHN CITTI and LESTER YAMASHITA Plaintiffs (Moving Parties)
– and –
ERIC A. KLEIN, EVAN L. KLEIN, KLEIN PROPERTY GROUP INC., KLEIN CAPITAL GROUP and KPG CAPITAL LP Defendants/Plaintiffs by Third Party Claim
– and –
CADMAN CAPITAL INC. and GILES CADMAN Third Parties
COUNSEL: R. Bevan Brooksbank and Sara A. McGregor, for the Plaintiffs (Moving Parties) Eric A. Klein and Evan L. Klein, appeared in person, and on behalf of the corporations Michael Meredith, for the Third Parties
HEARD: November 17, 2021
REASONS FOR DECISION
McEWEN J.
[1] This motion follows my Reasons for Decision dated April 23, 2020 wherein I found the Defendants Eric Klein and Evan Klein (collectively, “Messrs. Klein”) to be in contempt of the Mareva Order and the Continuation Order (the “Court Orders”). Messrs. Klein breached the Court Orders by placing a mortgage in the amount of $25,000 on a duplex located at 579-581 Rue Niverville, Trois-Rivières (the “Property”). They also breached the Mareva Order by collecting rent on the Property and thereafter by retaining $5,000 paid by the mortgagee when Messrs. Klein voluntarily surrendered the Property, which was subsequently sold by the mortgagee.
[2] As a result of the aforementioned Contempt Order, the Plaintiffs now return to this Court seeking a number of orders with respect to the issue of penalty as follows:
• Sentencing Messrs. Klein to a term of imprisonment of 120 days. • Striking Messrs. Klein’s Amended Statement of Defence and Counterclaim. • Costs of the sanction motion on a substantial indemnity basis. • Such further and other relief as counsel may advise and this Court deems just.
[3] Specifically, the Plaintiffs do not seek the payment of a fine. They take the position that Messrs. Klein, given their self-proclaimed difficult financial circumstances, will be unable to pay a fine. Further, given that Messrs. Klein have failed to pay costs to date in the amount of $15,474.32, the Plaintiffs argue there is no basis to believe that they will pay any fine.
[4] Messrs. Klein, on the other hand, submit that a term of imprisonment would be disproportionate to the acts of contempt. They further submit that they have tried to engage Plaintiff’s counsel in settlement negotiations but have been unable to resolve the issue of purging their contempt. They also submit that they further do not really know how to purge their contempt and given their unfamiliarity with the law in this regard and unfruitful negotiations, they have not paid any money to the Plaintiffs.
[5] They also point to the fact that they have apologized to this Court for their contempt and are truly remorseful.
[6] The following factors are relevant to the determination of an appropriate sentence for civil contempt:
a) the proportionality of the sentence to the wrong-doing; b) the presence of mitigating factors; c) the presence of aggravating factors; d) deterrence and denunciation; e) the similarity of sentence in like circumstances; and f) the reasonableness of a fine or incarceration (relative to the means of the contemnor): see Business Development Bank of Canada v. Cavalon Inc., 2017 ONCA 663, 416 D.L.R. (4th) 269, at para. 90, leave to appeal refused, 2018 Carswell Ont. 13162 (S.C.C.).
[7] With respect to the issue of mitigating factors, there are a number of factors that a Court ought to consider when determining the appropriate sanction to impose for civil contempt. These include:
a) where there is no evidence of previous defiance of any Court Order on the part of the contemnor; b) whether it is the contemnor’s first conviction of contempt; c) whether the contemnor has purged or attempted to purge their contempt; d) whether the contemnor has issued a sincere apology or demonstrated remorse to the Court; e) whether the contemnor has admitted to the breach or breaches; f) the availability of requested information to the plaintiff through other means; g) the existence of separate sanctions for the same factual circumstances such as a fine from the Ontario Court of Justice; h) the existence of dependents who rely on the contemnor; and i) evidence of efforts to mitigate damages to other parties: see AG of Ontario v. Trinity Bible Chapel et al, 2021 ONSC 1169, at para. 30.
[8] I have reviewed all of the aforementioned considerations both with respect to determination of the appropriate penalty and mitigation.
[9] I start my discussion with respect to the issue of incarceration.
[10] The law is clear that incarceration for civil contempt is rare and should only be undertaken where the breach of the Court Order is knowing and deliberate, continues over several days and the only response from Defendants are defiant without remorse: see Business Development Bank, at paras. 82-89.
[11] That is not the case here. Notwithstanding the Plaintiffs’ assertions, the acts of contempt were fairly discrete in nature and involved a $25,000 mortgage, approximately $5,000 in rent and the retaining of a $5,000 surrender fee, totaling approximately $35,000. The acts were committed at a time when Messrs. Klein were undergoing financial strain and were their only acts of contempt.
[12] In light of the rather modest nature of the contempt, which did not cause any direct financial loss to the Plaintiffs, it is my view that imposing a period of incarceration, however brief, would be disproportionate particularly given the current COVID climate.
[13] This brings me to a discussion as to whether it is appropriate to strike Messrs. Klein’s pleadings and/or impose a fine.
[14] As noted, the Plaintiffs submit that a fine would be inadequate since there is no expectation that it would be paid. Given Messrs. Klein’s self-proclaimed financial difficulties and the fact they have paid no monies to date with respect to the outstanding Costs Order or attempted to purge their contempt, this submission has merit. It bears noting, however, as I will refer to later in these Reasons, that Messrs. Klein do have employment and it is unclear as to why they have not paid any of the outstanding costs award. It also bears noting that they have placed themselves outside of this Court’s jurisdiction by moving to Mexico.
[15] Furthermore, even though Messrs. Klein have exhibited remorse and have provided an apology, they continue to maintain that Mr. Cadman, the object of their Third Party Action, continues to be the driving force behind this litigation. They further made submissions that Mr. Cadman and his employee were somehow involved with the Property to Messrs. Klein’s detriment, which is a difficult submission to understand given the acts of contempt were committed solely by them. It is unfortunate that, notwithstanding their contempt, they seem to attempt to relitigate the merits of this case each time they return to the Court[^1].
[16] In all of these circumstances, pursuant to Rules 60.11 and 60.12 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I am of the view that a reasonable penalty is to impose a fine of $35,000 upon Messrs. Klein to be paid within 60 days. This is, obviously, the approximate amount of what they improperly took. It is also a rather modest sum commensurate with the nature of their contempt and their employment.
[17] If they do not pay the fine, along with the outstanding Costs Order of $15,474.32 within the 60 days, their Amended Statement of Defence and Counterclaim will be struck. I realize that striking pleadings, which in this case include a counterclaim, is a serious matter. The facts of this case, however, disclose that Messrs. Klein willfully violated Court Orders, their acts of contempt cannot be cured, they continue to blame others for their actions and they have failed to take serious steps to enter into a settlement with the Plaintiffs. As a result, they have paid no monies to date both with respect to the funds they retained concerning the Property and the issue of costs.
[18] As pleaded, the Plaintiffs’ claims against Messrs. Klein and their corporations generally involve recovery of the $375,000 USD that they invested with Messrs. Klein, and ultimately lost.
[19] It further bears noting that the counterclaim was launched against the Plaintiffs four days after the contempt motion was heard which does not indicate a level of remorse. Rather, it indicates a desire to fight on in circumstances where they have violated Court Orders.
[20] Further, as noted above, Messrs. Klein submit that they are of limited financial resources. In their cross examinations held in March 2021, however, they both deposed that after their recent relocation to Mexico, they secured employment and have been earning incomes which are not insignificant. Messrs. Klein’s social media posts also boast of recent financial successes. This, at least somewhat, belies their argument that they do not have the financial wherewithal to try to purge their contempt or pay the Costs Order.
[21] In all of the circumstances, it is reasonable to allow Messrs. Klein 60 days to pay the fine of $35,000 and the Costs Award; otherwise, their pleadings ought to be struck. They have acted in contempt of Court Orders, made no attempt to purge their contempt or pay the Costs Order, removed themselves from the jurisdiction and continued to blame others for their misfortune. If they pay the fine and the outstanding Costs Award, they have the right and ability to defend the action and pursue their counterclaim. If they do not, it would be grossly unfair to the Plaintiffs to condemn them to have to pursue their action and defend the counterclaim involving Defendants which have been found in contempt, and will not or cannot pay a fine or the outstanding Costs Order.
DISPOSITION
[22] Based on the foregoing, this Court orders that the Defendants pay a fine in the amount of $35,000 to the Court and the Plaintiff’s outstanding costs of $15,474.32 within 60 days failing which their Amended Statement of Defence and Counterclaim will be struck.
[23] If the parties cannot resolve the issue of costs, they can provide me with written submissions not to exceed five pages, excluding the Bill of Costs and Authorities. The Plaintiffs shall submit their Bill of Costs within 14 days of this decision, with the Defendants responding 14 days thereafter.
McEwen J.
Released: January 13, 2022
COURT FILE NO.: CV-18-00606547-00CL DATE: 20220113
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
JOHN CITTI and LESTER YAMASHITA Plaintiffs (Moving Parties)
– AND –
ERIC A. KLEIN, EVAN L. KLEIN, KLEIN PROPERTY GROUP INC., KLEIN CAPITAL GROUP and KPG CAPITAL LP Defendants/Plaintiffs by Third Party Claim
– AND –
CADMAN CAPITAL INC. and GILES CADMAN Third Parties
REASONS FOR DECISION
McEwen, J.
Released: January 13, 2022
[^1]: There have also been difficulties with Messrs. Klein answering questions at their examinations and seeking, inappropriately, to examine witnesses. I will not examine these issues in these Reasons given my other findings which are more germane to the issue of penalty.